Social Security Handbook

To calculate the net earnings from self-employment, follow the steps
below:

Add up your total gross income as calculated under the
income tax law. Include income from all your trades and businesses.

Subtract all the deductions, including the allowances for
depreciation that you are allowed when you calculate your income tax from
the result in (A). This gives you your net earnings.

Effective with taxable years beginning after 12/31/89
multiply the result obtained in B. by .9235 (i.e., 100% - 7.65% = 92.35%
or 0.9235) to derive your net earnings.

Note: If you have more than one business,
calculate net earnings by adding up the net profits or losses from all the
businesses. Net earnings also include any ordinary income or loss from
partnerships. If any part of your income is included in gross earnings
from self-employment, expenses connected with this income cannot be
deducted.

1200.2Are there other ways of calculating
net earnings from self-employment?

Under certain circumstances, optional methods of computing net
earnings from self- employment are available. For a discussion of these
methods, see
§§1233-1235and
§§1241-1244.

Definitions of terms used in calculating income for income tax
purposes also apply to calculating net earnings from self-employment. For
further information on these calculations, see the tax guides available
from any Internal Revenue Service office, especially:
Farmer's Tax Guide, Internal Revenue Service
Publication No. 225, and Tax Guide for Small
Business, Internal Revenue Service Publication No. 334.

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